Chamber economist: Obama tax increase would be 'bullet in the head' of recovery

U.S. Chamber of Commerce economist Martin Regalia on Monday said the tax increases advocated by President Obama would essentially kill any chance for an economic rebound. 

"That's what you're suggesting, is a corporate bullet in the head," Regalia said. "That is going to be a bullet in the head for an awful lot of people that are going to be laid off and an awful lot of people who are hoping to get their jobs back."

Regalia made the comment at an American Petroleum Institute event on the tax increases proposed by the Obama administration. Much of the discussion focused on tax cuts enacted by President George W. Bush that are slated to expire at the end of the year. 

Obama has suggested continuing the breaks that benefit the middle class and most small businesses while allowing tax cuts for wealthier entities to expire. Regalia said that plan will fail to boost economic demand. 

"The thing [the administration] sees the least about the economy are the synergies," he said. "Many of these small businesses sell into big business. ... Saying 'I'm going to stimulate the small part of the economy and not the big part of the economy' is a fool's error. It's almost impossible to do."

Lawmakers are expected to begin debating the fate of the Bush tax cuts in earnest when they return from the August break. Regalia expects a contentious midterm election will keep the issue on the back burner until after ballots are cast in November. 

"We're entering a hot and heavy campaign season that is likely to be noteworthy in terms of the amount of effort spent by both sides," he said. "That complicates, I think tremendously, whether we actually get something done. It's hard to envision handling this particular issue in the heat of the campaign."

Others have made similar predictions. If accurate, lawmakers will have less than two months to wrap up what will surely be a testy debate over extending the tax breaks. 

Unlike other tax provisions Congress is looking to extend, the Bush tax cuts affect marginal rates. These rates determine the level of taxes that are taken out of paychecks. 

If the debate slips into next year, companies in January will automatically increase the amount of taxes withheld from paychecks. 

The tax increase is already in law and can only be avoided if Congress moves to extend the breaks before Jan. 1.

"If you were to allow [the tax cuts] to expire with some sort of [promise that] we're going to address them first thing on the docket in February, then the paychecks and the write downs, your depreciation and all that stuff is immediately affected as of the first day of January," Regalia said, adding that the tax increase will be a huge impediment for economic growth. 

"If we don't get the economy growing at more than 3 percent, we will not reemploy the people that have been displaced," he said. "They will die in their current status."